Durable goods lift dollar in pre-G7 trade

NEW YORK -- The dollar strengthened against its major European rivals Friday after another strong U.S. economic indicator lent further credence to the view U.S. interest rates will have to rise soon.

Durable goods orders last month rocketed 3.4 percent from the previous month, way above economists' forecasts of a 0.7 percent rise. And February's 2.5 percent increase was revised up to a rise of 3.8 percent.

But the dollar gave back some of its intraday gains as the New York session drew to a close. With the two-day meeting of Group of Seven finance ministers and central bankers in Washington getting underway Friday, dealers sought to square bullish dollar positions and book profit.

"Durable goods took the dollar up against the euro...and put a bid in the dollar against the European currencies," said Grant Wilson, senior trader at Mellon Bank in Pittsburgh, adding that bond prices fell and bond yields jumped on the data. Higher U.S. interest rates enhance the appeal of U.S. assets.

Bear in mind, however, that the dollar has had a good run this week and that the market is holding long dollar positions - effectively bets on further gains for the currency - and it's little surprise the dollar started to ease back from its session highs.

"There has to be some profit-taking," said David Durrant, chief currency strategist at Julius Baer in New York, noting that if there are any risks to the dollar from the G7 meetings they'll probably be to the downside.

In late New York trading, the euro was quoted at $1.1832, down from $1.1899 late Thursday. The dollar was quoted at 109.09 yen, down from 109.49 yen late Thursday.

The dollar was quoted at 1.3166 Swiss francs, up from 1.3089, and 1.3592 Canadian dollars, up from 1.3558. The British pound rose to $1.7724 from $1.7712.

If hawkish interest rate expectations helped lift the dollar on the back of that stellar durable goods number, then slightly more dovish comments from Federal Reserve officials later in the session helped bring it off its highs.

While stating that "everyone knows (the 1 percent Fed fund's target rate) is going up," Chicago Fed President Michael Moskow said Friday that the rate hike's timing isn't yet clear. Pointing to relatively benign inflation pressures, he also said that the Fed still has the "luxury of being more accommodative" relative to past economic cycles.